CA Final Law - Answering Practical Questions with Case Laws

How to Answer Practical Questions with Case Laws

Model Question:

SK Ltd wants to remove Mrs. Surabhi from the Board stating that she is not contributing any thing to the company activities, and thus seeks your advice on the following matters:

a)      Can the board of directors remove Mrs. Surabhi from the company’s board ?

b)      Whether the Managing Director of SK Ltd move to the Civil Court by way of a petition to remove Mrs. Surabhi ?

c)      Whether the company can remove Mrs. Surabhi, assuming she was stated as a permanent director under Clause 87 of the Articles of Association of the company ?

d)     Does Mrs. Surabhi is eligible for a compensation under the Companies Act 1956 if she is so removed ?

Model Answer:

The provisions relating to removal of directors are dealt in Section 284 of the Companies Act, 1956.

As per Section 284, directors can be removed from office by passing an ordinary resolution in a general meeting and by giving a special notice to the company. Thus, Companies Act 1956 gives the power to remove the directors to the share holders and not to the board of directors.

a)     No. Mrs. Surabhi cannot be removed by the board of directors pursuant to the provisions of Section 284, wherein the authority to remove directors is vested with the share-holders of the company;

b)     No. The managing director cannot move to the Civil Court by way of a petition to remove Mrs. Surabhi. The facts is similar to that M.R.P. Kaitan Vs. Kaitan Industries Pvt. Ltd., wherein it was decided that Civil Court will not entertain petitions relating to removal of directors of a company, as there is a machinery for the same, prescribed under Section 284 of the Companies Act, 1956.

c)      Yes. The facts is similar to that of Tarlok Chand Khanna Vs. Raj Kumar Kapoor, wherein it was decided that apart from government directors, life directors of a private company and nominee directors, share-holders of a company have full power to remove directors, even though they are appointed as permanent directors in the articles of association of the company. Thus, Mrs. Surabhi can be removed by the share-holders of the company even though she is stated as a permanent director under Clause 87 of the articles of association of the company.

d)     No. Mrs. Surabhi is not eligible for compensation if she is removed. The provisions relating to payment of compensation to loss of office of directors are contained under Sections 318 to 321, wherein it is stated that compensation for loss of office can be paid only to managing director or whole-time directors. Assuming Mrs. Surabhi is an ordinary director, she stands dis-qualified for any compensation, when removed from the office of director.

Authored by CS. Bilu Balakrishnan